Estimating and Testing the Optimal Currency Baskets in China--PMG dynamic panel ECM
Read
DownLoad |
| Title | Estimating and Testing the Optimal Currency Baskets in China--PMG dynamic panel ECM
|
| Author | Zhang Xiaoli and Liu Qiren |
| Organization | Shanghai Institute of Foreign Trade |
| Email | zxl-mailbox@163.com; liuqiren@126.com |
| Key Words | Currency Basket; Exchange Rate Regime; Optimal Currency Weight; Cointegrated Panel; PMG |
| Abstract | Since 2005, China deploys a currency basket as a reference unit for monitoring exchange rate changes and as an anchoring mechanism for the formation of the central parity. Designing an appropriate weighting scheme can also enhance the fundament to increase exchange rate volatility in further exchange rate reforms. We derive the optimal currency basket in terms of its contribution to minimize the fluctuation of China’s external account and find that it is best for China to form a currency basket that leans towards the dollar, the euro and Japanese yen, with the dollar taking up about 40% of the total weight. Then we employ pooling mean group(PMG) method to estimate the dynamic ECM panel data model, and figure out whether china’s currency basket policy has already met its objection, the result robustly shows its effect on minimizing the sensibility of china’s export and import to exchange rate. |
| Serial Number | WP112 |
| Time | 2011-10-27 |
|